Inside the Executive Suite with Jose Varela, CPO of 3M: More Sunny Days in St. Paul Ahead?

As he looked out his window at the sunny spring day in the suburbs of St. Paul, Minnesota, Jose Varela seemed upbeat and rather excited about where sourcing operations are headed for what was once known as the Minnesota Mining and Manufacturing Company — better known today as 3M.

Perhaps that’s because he’s somewhat of a newbie.

“I’m new to sourcing,” Varela said. “I’ve been in this position less than a year.” He’d previously been a managing director with 3M Brazil, where there were undoubtedly many more sunny days outside his window than he encounters in the Great White North.

Varela is not, however, new to the world of finance and sales, and he had enough global operations savvy to take on the CPO role with gusto. Overall, he’s been with the company for 27 years. Now, he heads up sourcing operations for a $30 billion maker of adhesives, tapes and market-leading workplace and personal safety products.

Officially the vice president of global sourcing for 3M, Varela took the time to chat with Spend Matters about how one of the global industrial leaders in innovation sees the challenging sourcing and risk landscape both today and into the future. What’s clear is how the maturity of the overall organization and the forward-thinking nature in 3M’s DNA result in streamlined collaboration, both internally and with the company’s myriad suppliers — more than 100,000 around the world.

But even for a market leader (No. 93 on the Fortune 500), there are some roadblocks ahead.

Jose Varela: What’s keeping us very active and busy right now are, basically, supply constraints. We need to make sure that we have the raw materials and services always ready and available to our factories. The economy's improving — 3M [overall] had a great Q1, so when you grow, you have good problems. So all the communication that we have with our suppliers is increasing. Once we have the raw materials in our factories and the services of our operations, making sure that we deliver on those goals on time with the right 3M quality to our customers is primary.

Secondly, cybersecurity is becoming a topic that we increasingly discuss. Corporate has introduced a lot of new policies, especially because we are connected with so many suppliers. We have computer-to-computer EDI connections with many of our suppliers and we exchange quantities, prices and contracts with them electronically, and also personal information internally. So that's another thing keeping us awake at night.

SM: Obviously there's a lot of price volatility on the raw materials end of things. Are there certain trends or specific data sets you’re tracking closely?

JV: From the price and supply point of view, we have experts by key categories within our organization. One of the biggest[-volume] raw materials that we buy is polypropylene. So our experts need to understand the markets, understand the suppliers, be very good negotiators, understand the quality that we need, and proactively assure supply to our factories. The way we are innovating is working closer with our key suppliers. We have been enjoying a very positive market for the last five years, so the prices have been coming down. Now markets are starting to improve in terms of higher prices, but we need to keep our factories competitive and we need to keep providing savings to them. But that collaboration with the suppliers is paying dividends. We have embarked on many projects with them and need to make sure that we execute on them.

SM: What are some of those examples of how you approach supplier collaboration and relationships?

JV: We procure more than 100,000 different SKUs and 3M produces probably 10,000 different items. We have been adding new and different SKUs for the last 100 years. That means for our suppliers of paper and plastic cores, we ask them to deliver many different SKUs — many of them basically the same, but just different by a millimeter. Our supplier needs to adjust the setup of the machines to produce just a slightly different SKU. Now we're starting to share data, and say, "Hey, we can rationalize our SKUs," and that is giving us savings. The same goes for the very simple corrugated carton boxes. We order basically 10,000 different sizes and colors, now we are moving more toward helping the suppliers with printing online, etc. Trying to have a win-win relationship with them. What saves costs for the suppliers if we are more efficient? What saves costs for us? That's one example.

In another example, we want to leverage the technology of our suppliers. We have simplified the IP contracts, but I would say the big change is we're opening up our labs more to suppliers and they are opening their labs up more to us and we are collaborating on projects. It has been amazing. Many times we have issues with some kind of adhesive. Guess what? Our suppliers are inventing new chemistry and that is helping us substantially. Also, our suppliers are creating a lot of intelligent sensors for temperature, movement, even for physical stress of a person. We don't produce a lot of those sensors, but we are incorporating those sensors into our respirators, even into some of our packages in terms of temperature.

The interview continues in Part 2, including how 3M Sourcing is using procurement technology and cognitive computing to its advantage.